Simplifying the sales tax

By Michael Johnsen

As of Sept. 15, California became the eighth state in which Amazon.com will levy sales taxes on purchases made by residents in that state. Pennsylvania joined that group two weeks prior. Add to that the five states that don’t have any sales taxes, and that’s 13 states where national brick-and-click retailers are competing on a level playing field with the pure-play online retail juggernaut.

But that still leaves 37 states where Amazon.com sells merchandise at a discount ranging between 2.9% and 6.875%. And given the recent GroupM Next study that found 45% consumers will shop in-store but buy online for as little as a 2.5% savings, those are 37 states where many brick-and-mortar retailers have become a little out of sorts over the whole online sales tax collection issue. “With an estimated $24 billion going uncollected each year, this disparity is threatening jobs provided by local retailers and is getting worse as more shopping moves online,” noted the National Retail Federation.

According to a 1992 Supreme Court decision, states can enforce sales tax collection on remote sellers if that seller has a physical presence in the state. “This issue didn’t start online; it started with catalog sellers,” Rachelle Bernstein, NRF VP and tax counsel, told DSN. “What the Supreme Court said was the problem was a commerce clause [issue] — there are 7,600 different sales tax jurisdictions between states and local governments,” she said. For example, one county might enforce a sales tax on a hat, where another county would exempt sales taxes on the purchase of a hat. With that many jurisdictions, remote sellers in many cases would have to go down to a SKU level to determine whether or not a sales tax should be collected, Bernstein said, so the Supreme Court ruled that in order for states to impose sales taxes on products sold by remote sellers, they would have to simplify the process.

Two federal bills in Congress are currently under consideration: the Marketplace Equity Act in the House and the Marketplace Fairness Act in the Senate, which would simplify the process on a national scale. Though not identical, the two bills would mandate simplification requirements — such as creating a single sales tax authority within a state or states providing software that facilitates collection — that would be applicable to remote sellers only.

According to the company’s latest annual report, Amazon.com is in favor of federal legislation that would require sales tax collection under a nationwide system.

While price and convenience are two significant competitive elements that favor online retailing, there is one advantage card being increasingly played by brick-and-click retailers: multichannel retailing.

“Today’s consumer increasingly is on the go and wants to be able to shop with a start-anywhere, finish-anywhere mentality,” noted Ian Kahn, PricewaterhouseCooper director, regarding PwC’s annual survey on the evolution of multichannel retailing. So the combination of the ease-of-use associated with shopping online with some of the exclusively in-store experiences can make for a very compelling proposition, Kahn said.

According to the GroupM Next research, customers who interact with an associate are 12.5% more likely to purchase in-store. “Nearly 10% of purchasers we surveyed chose to complete their purchase in-store, no matter the price discount offered,” stated Patrick Monteleone, GroupM Next director of research. “The key for marketers is to identify the next 10% — the group of customers [who] are sensitive to price, but can be swayed to stay in-store.”